The measure was a one sentence bill that read simply: "The Congress shall have the power to prohibit the physical desecration of the flag of the United States."
Supported by President George W Bush, the motion was backed by 66 votes, while 34 voted against it. The result fell short of the two thirds majority needed to pass a constitutional amendment and sent it on the states for ratification.
The leader of Senate Republicans, Bill Frist, a supporter of the proposal, said the vote was a defeat for the US flag itself and the patriotic American spirit it represents. "'Old Glory' lost today."
"At a time when our armed services are defending America's freedom in the war on terror, it's unfortunate that a minority of my colleagues blocked this amendment," Senator Frist said after the vote.
But opponents of the measure said flag burning is an expression of free speech which is guaranteed by the US Bill of Rights.
Had the vote been successful it could have been an initial step in what would have been the first congressionally mandated change to the Constitution in 35 years.
Supporters of the motion, say that a constitutional amendment is the only way to overturn a Supreme Court ruling in 1989 that struck down flag-protection laws in 48 states and the District of Columbia.
Mr Frist has hinted that his fellow senators may face another vote on the issue. “I hope the amendment's support in the Senate will continue to grow," he said.
"In the meantime, I hope America rededicates itself to respecting the flag, our symbol of national unity, especially when our troops are wearing that flag as they risk their lives for this great country every day."